High cost of libel cases shackling UK newspapers, says study

Conditional fee agreements are making defamation cases in England and Wales 140 times more costly than in the rest of Europe and may not be compatible with human rights legislation, an Oxford University study has warned.

According to the report, called A Comparative Study of Costs in Defamation Proceedings Across Europe, commissioned by Daily Mail publisher Associated Newspapers, the use of conditional fee agreements – which enable lawyers to take libel cases against newspapers on a no win, no fee basis – is leaving newspapers "shackled" and unable to act as public watchdogs.

The report also noted that the use of CFAs potentially contravened articles 6 and 10 of the European Convention on Human Rights in defamation and privacy cases.

Article 10 of the European Convention guarantees the right to freedom of speech, which the report said was being denied to media companies in the UK and Ireland, which were being forced to self-censor because they "no longer had any economic incentive to defend [themselves] against defamation actions in court".

The report, which compared an array of cases in the UK with 11 other European jurisdictions since conditional fee agreements were enshrined in British law in 1995, also noted that CFAs allowed a litigant to charge a success fee of up to 100% in this country.

Defendants losing libel actions in the UK face a doubling of what the court had ruled were reasonable costs against them, potentially contravening Article 6 of the European Convention, which guarantees the right to access to justice, the report noted.

"As a result the study found that the CFA acts as a catalyst, forcing media outlets to settle claims, resulting in a self-imposed restraint on media outlets who are otherwise faced with the risk of being sued by a claimant on a CFA," the report said.

"Such restraint is imposed irrespective of journalistic standards and shackles the media outlets' important role as a public watchdog."

As a solution the report suggests that a "logical starting point" would be to impose a limit on the costs a successful litigant could claim from a defendant. This could involve limiting the amount the winner could recover as an hourly or fixed fee, so that the successful party had to pay his lawyer any amount exceeding that limit.

The report, which compared costs in defamation cases in England and Wales with those in countries including Belgium, Cyprus, France, Germany, Ireland, Italy and Sweden, said that even in non-CFA cases, which did not involve a success fee or after the event insurance, this country was up to four times more expensive than Ireland, the next most costly jurisdiction. Ireland was nearly 10 times more expensive than Italy, the third most expensive country.

"If the figure for average costs across the jurisdictions is calculated without including the figures from England and Wales and Ireland, England and Wales is seen to be around 140 times more costly than the average," the report added.

In cases where CFAs applied or success fees were paid, the costs claimed were even higher. One reason for the high costs in England and Wales was the number of lawyers involved in each case, combined with the length of court proceedings, the report noted.

"The study determined that the difference between claimant's CFA costs and defendant's non-CFA costs can be explained by the fact that where a client has the benefit of a CFA or similar agreement, the client no longer has an incentive to exercise control over the legal work being done and to resist cost increases. This naturally erodes the client's resistance to high costs and distorts the costs control mechanism normally inherent to the market," the report added.

UK newspapers have often complained about the increasing use of CFAs by litigants in defamation cases, which increases the financial risks involved in defending a case.

CFAs enable lawyers to take libel cases against newspapers on a no win, no fee basis which means that if they win they can charge the losing side up to twice their normal hourly fee at a rate of up to £800 an hour.

According to Sweet & Maxwell's research of more than 250,000 online law reports and transcripts, 61% of reported defamation cases in England and Wales over the 12 months until May last year resulted in a "statement in open court". This was up from 56% of cases over the same period in 2006-2007 and just 21% of cases in 2004-2005.

The report was published in December but has only now been widely circulated among lawyers specialising in the media.

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